Financial Advisor Fees Explained

What Is an AUM Fee?

A clear explanation of assets under management fees, how they are calculated, and how they differ from flat-fee financial advice.

An AUM fee is a financial advisory fee based on a percentage of the assets an advisor manages for a client. AUM stands for “assets under management.”

How an AUM Fee Works

Under an AUM model, the advisor charges an annual percentage of the investment assets they manage. The fee is typically deducted directly from the client’s investment account.

For example, if an advisor charges 1% annually and manages a $1 million portfolio, the advisory fee would be approximately $10,000 per year.

$1 million At a 1% AUM fee, the annual advisory fee would be about $10,000.

$2 million At a 1% AUM fee, the annual advisory fee would be about $20,000.

$5 million At a 1% AUM fee, the annual advisory fee would be about $50,000.

Why AUM Fees Can Be Hard to Compare

AUM fees are usually expressed as a small percentage, but the dollar cost can increase as the portfolio grows. This can make the fee feel less visible than a clearly stated annual dollar amount.

Two clients may receive similar services but pay very different dollar amounts if one has a significantly larger portfolio.

How Is AUM Different From a Flat Fee?

With an AUM fee, the advisor’s compensation is tied to the size of the investment portfolio being managed.

With a flat fee, the advisor charges a clearly stated fee that is not based solely on portfolio size.

Is an AUM Fee Bad?

Not necessarily. An AUM fee can be appropriate for some investors, especially when they want ongoing investment management and prefer the fee to be deducted from their portfolio.

The important question is whether the fee is transparent, reasonable, and aligned with the services being provided.

The Key Question

The most useful way to evaluate an AUM fee is to convert the percentage into dollars and compare that cost to the actual planning, investment management, and guidance being received.

This page is intended for general educational purposes and should not be interpreted as personalized financial, tax, or investment advice.